French Property Purchase Deposit
French Property Purchase Deposit
A French property purchase deposit is paid when an agreement to purchase a property (compromis de vente) is signed and the 7 day cooling off period has expired.
When you purchase a property in France, you are required to pay a deposit at an early stage of the process. Unlike in England, the exchange of contract happens shortly, if not immediately, after your offer has been accepted. In fact, the notaire will not start the searches until both the vendors and purchasers have signed an initial contract, and the buyers have transferred the deposit to the agent or notaire.
However, not all payments on account have the same implications, as they depend on the type of contract which is signed in the first place. This is why there are several names for the initial contract. The ‘compromis de vente’ is probably the most common. However, a promise of sale (promesse de vente) is common in some areas. When buying off-plan, a reservation contract is used.
In the case of a 100% LTV mortgage for French tax domiciled individuals the mortgage approval document will need to be produced in place of a deposit.
Compromis de Vente
With a compromis de vente, the buyers are bound to buy the property subject to a few conditions being fulfilled: these mainly relate to the searches to be carried out or to the securing of a mortgage.
If these clauses suspensives are not fulfilled, the buyers are entitled to withdraw from the contract and have their deposit returned. Any other reason or a change of mind would not allow them to withdraw from the purchase, even if they are willing to lose their deposit. Indeed, the vendors could either force the sale through the French courts or seek damages.
When there is a penalty clause in the contract, the amount of damages to be given to the party in breach is fixed and usually amounts to 10% of the price plus the estate agent’s fees. (There is an initial seven-day cooling-off period after signing the compromis, during which time the purchasers can pull out for any reason without penalty).
Promesse de Vente
With a promesse de vente, the buyers are granted an option to buy the property at the end of a specific period of time. This is very simillar to the purchasing of a financial option.
The vendors are bound to sell to them at the agreed price fixed until the expiration of the contractual time stated in the promesse.
The payment on account in this case is an indemnity (indemnité d’immobilisation), for the time the vendors set aside their property for the potential buyers. The indemnity will be lost by the purchasers if they decide to withdraw from the purchase because they have changed their mind or the sale of their property has not taken place. If the purchase is completed, the indemnity will make up part of the total price at completion.
Contrat de Réservation
The purchase of a property off-plan will result in a reservation contract with the developer, by which the purchaser reserves the specific property in exchange for a deposit. As it provides an option to buy only, the purchasers can decide not to purchase by losing the deposit. Similarly, the developer can decide not to go ahead with the development, in which case the deposit is returned to the purchasers.
The reservation contract enables the developer to secure prospective buyers before the technical, financial and planning stages of the project have been completed. The completion date must be within a year if the developer requires a 5% deposit and within two years if the deposit is 2%.
If the completion period indicated in the reservation contract is not respected by the developer the purchaser is entitled to pull out and recover the deposit.
If the final purchase price exceeds the provisional price by more than 5% or if the property is worth 10% less than anticipated (eg owing to the quality of materials used or its final layout), the developer would forfeit the deposit.
The type of initial contract will therefore depend on what you are buying but also on the personal circumstances around this purchase, especially if it depends on any external event you do not have any control over (sale of a UK property, end of a lease contract etc).
The let-out conditions can be tailored to individual circumstances or a promesse could be considered if such conditions are not possible.